In June 2021 the Education and Skills Funding Agency ESFA issued its annual update to their Academies Financial Handbook. The purpose of this briefing is to summarise the changes and any particular ac
The decision means that there is now little room for doubt that commission and overtime, both guaranteed and non-guaranteed (where it forms part of normal remuneration and where the worker is obliged to work overtime if required) will have to be included in holiday pay. The decision upholds the similar decision of the 2015 case of Bear Scotland and Others v Fulton and Others (reported here), which clarified that overtime can also be included as part of holiday pay calculations.
Mr Lock, who was employed by British Gas as a salesman, received commission for sales on top of his basic pay. When he took periods of annual leave, his holiday pay was calculated on basic pay only. However, when he was on holiday, he could not generate commission and so argued that his holiday pay calculation ought to reflect what he would have earned from commission during his holiday. Not including commission as part of holiday pay calculations meant that Mr Lock received significantly less than his normal pay during his holiday and was a disincentive to take annual leave.
The decision will mean that workers who normally receive commission and are paid less than their normal income during periods of annual leave should receive holiday pay which reflects their normal pay. This will lead to additional expense for employers who need to be aware that a failure to include such payments will open the floodgates to a whole succession of unlawful deductions from wages claims. One consolation for employers will be that, under the Deduction from Wages (Limitation) Regulations 2014 there is now a 2 year limit on the look back period for claims for holiday pay which are made on or after 1 July 2015.
What remains unclear however, is the correct reference period on which a calculation of holiday pay should be based. In Lock, it was ruled that holiday pay must correspond to the workers’ “normal remuneration” and that this was a matter for the national courts to work out by taking an average over a reference period that it “considered to be representative”. Rather unhelpfully, this practicality still remains to be determined but we suggest that generally a 12 week reference period, as applied for overtime, is used in the meantime. Until a further ruling on this issue, it is likely that Tribunals will approach the issue on a case by case basis.
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To find out more about employment issues and advice please contact Kate Watkins.
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